Half a year ago we put out our last piece on USU, advising investors to sell the shares at the delisting offer price of € 18.50, in order to avoid having a highly illiquid asset in the portfolio. Meanwhile, the shares have been delisted from the Frankfurt Stock exchange as well as most regional exchanges with the exception of the Hamburg Stock Exchange.

Yet, things took a turn a couple of weeks ago, when the company announced that Thoma Bravo (US-based private equity firm) would take over a majority stake in USU’s product business. According to people familiar with the matter, USU will keep a minority share of c. 25% after the deal, which values the product business at about € 200-300m.

Mind you, the delisting offer price of € 18.50 per share valued the whole company, including the service business (32% of sales, 14.1% EBIT margin in FY ’23; 20.9% in Q1 ‘24), at an EV of € 188m. Also, keep in mind that the depressed valuation at the time of the delisting offer was mainly due to a weak development of licensing sales, which caused the EBIT margin of the product business to drop to 4.4% (vs. 11.8% in FY ’22). In Q1, product business EBIT margin however recovered to 7.4%.

Following the news, shares surged at the Hamburg Stock Exchange, reaching levels of around € 22 per share. However, taking the lower end of the valuation of the Thoma Bravo deal as a basis of our valuation, this is not at all reflecting the intrinsic value of the company, as it values the service business at only € 20m, or 3x EBIT, which is undeniably cheap for a growing business with recurring revenues. Taking into account the mid-point of the valuation, the service business is valued at a negative EV (see graphic on p. 2).

According to our peer group valuation however, we derive at an average EV/EBIT of 14x, which would translate into a fair EV for the service business of € 98m for FY ‘24e (eNuW: € 7.0m EBIT).

Against this backdrop, we update our rating to BUY with a new PT of € 30 based on our SOTP valuation, which is also in line with our recommendation prior to the delisting offer. In our view, this is currently one of the most appealing special situation cases in the DACH region. Notably, this takes into account the lower end of the supposed deal range, thus being very conservative.

Source: NuWays Research; *14x EV/EBIT FY '24e based on peer group incl. among others Nagarro, Kontron, SNP, Allgeier